08-29-2017 HUCM Special MeetingMINUTES
Special Meeting — Hutchinson Utilities Commission
Tuesday, August 29, 2017
Call to order — 7:00 a.m.
President Morrow called the meeting to order. Members present: President Monty
Morrow; Vice President Anthony Hanson; Secretary Mark Girard; Commissioner Robert
Wendorff; Commissioner Don Martinez; Attorney Marc Sebora; General Manager Jeremy
Carter.
Others present: Jim Booty (HDR), Mark Reuter (Caterpillar), Josh Klopp (Wartsila), Dan
Lang, Randy Blake, Jared Martig and Angie Radke.
The purpose of the special meeting is the consideration of Awarding the Units 6 and 7
Generator Bid and Authorizing the Bonding Pre -Sale to finance the purchase and
installation of the generation sets for Units 6 and 7.
General Manager Carter presented two bid proposals that were furnished by Wartsila and
Caterpillar. Both proposals were reviewed as to equipment provided, site suitability,
technical offerings and environmental compatibility. Both companies adequately
responded to additional requests or clarifications and both companies were considered
responsible bidders. Staff visited SMMPA facilities that housed CAT engines to get a
comfort level with these types of units and to ensure there would be no concerns or
operational issues with CAT units. This proper due diligence was essential because staff
is unfamiliar with running CAT engines compared to Wartsila engines which HUC
currently has in place with Unit 5. Staff also ensured both engine manufacturers could
deliver on their performance standards and bid proposals. Since HUC will be tax exempt
on the generating units staff will need to provide a tax -exemption certificate to the engine
manufacturer who is awarded the bid. Total bid price for Wartsila came in at $10,480,630,
total bid price for CAT came in at $8,918,659. This is a cost difference of $1,561,971
(14.9% Margin between bids). Both companies have comparable technical quality and
ability to meet the specifications of the bids documents, so HDR & staff are recommending
moving forward with the lowest bid offer, which is CAT. General Manager Carter asked
the board if they had any questions.
Commissioner Hanson asked how many different engines we have. Mr. Blake indicated
that we have many types; it is typical to have different brands of engines. In the past, it
has always been which manufacturer had the best price. We are able to run anything
and fix anything. Without further questions, General Manager Carter recommended
Awarding the Bid to CAT.
Motion by Hanson, second by Girard, to approve Awarding the Bid to CAT. Motion carried
unanimously.
General Manager Carter presented scenarios Authorizing the Bonding Pre -Sale to
finance the purchase and installation of the generation sets for Units 6 and 7. Estimated
total project costs is $16.6M. GM Carter reviewed "Wrap" versus "Level" P & I Payment
Structure. With a Wrap structure, HUC would have a ceiling on HUC's total annual debt
service payments but this option would back load larger principal payments on the new
bond issue increasing overall interest expense over the life of the bonds. Gas currently
has the largest debt service; however the gas division is in strong financial position and
will continue to pay down that debt. The wrap structure is not recommended since HUC
does not issue bonds on a regular basis and because HUC would end up paying more in
the end. Staff also looked at a Level Annualized structure, with options to defer principal
payments to any given year. Deferring principal payments can help limit cash outlay on
the front end and with a level debt structure; it mirrors HUC's incoming cash flow
consistently, and minimizes interest.
General Manager Carter recommends issuing a 20 -year bond, this term will mirror up with
the 20 -year capacity contract. In the future, there is also a clause where both parties can
exercise an additional up to 10 -year extension. The range recommendation is $16.6-
16.8M with the first principal payment - December 2019. Ehler's P & I estimates are
$1,230,000, RLU Capacity Revenue is $1,176,000; which is a net difference of $54K
annually. Estimated Total P & I over 20 years is $23,876,646. Revenue Contract over
20 years is $23,520,000. With $16.6M bonds, the contract will pay about 98% of the
project. Estimated timeline on Engines 8-9 Months. Puts the engines on schedule to
have running by fall of 2018.
Commission Girard inquired with the $16.6-$16.8, would we have critical spares in that.
General Manager Carter explained we would just have the Core in the amount, and have
cash to pay critical spares. This way we are not paying interest on spares and it will bring
the financing cost down to the $16.6M target
The Commission expressed their support of the approach going with the 'Level' P &
Debt Payment Schedule.
After discussion, General Manager Carter asked the commission if they want to continue
to move forward on financing the project. The Bond Financing Timetable is August 29th
have Commission Approve Bond Financing. September 12th the city council will look to
approve Bond "Pre -Sale". September 21St — September 27th Rating Evaluation, they will
assess HUC's bond rating. September 26th Preliminary Offering released to market, and
start getting bids back. September 27th HUC resolution approved concurring to the City's
upcoming Bond Resolution to move forward and award the bonds. October 10th Bond
Sale & final resolution awarding bonds at City Council. End of October/Early November
Bond closing and proceeds wired.
General Manager Carter suggested for the Board to consider paying off the 2003B bonds.
If it is considered, we need to let bond holders know 30 day in advance.
President Morrow asked the Commission if there were any other questions.
Motion by Commissioner Girard, second by Commissioner Martinez to approve
Authorizing the Bonding Pre -Sale to finance the purchase and installation of the
generation sets for Units 6 and 7. Motion was unanimously carried. (HUC Generation
Project attached.)
At this time, President Morrow acknowledged and thanked General Manager Carter and
the staff for all the work and due diligence that was done by everyone.
There being no further business, a motion was made by Commissioner Martinez,
seconded by Commissioner Wendorff to adjourn the meeting at 7:38 a.m. Motion was
unanimously carried. /
Ma Girard, Secretary
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